Alternative Approaches to Valuation and Investment

Go to Course: https://www.coursera.org/learn/valuation

Introduction

### Course Review: Alternative Approaches to Valuation and Investment #### Overview The course **"Alternative Approaches to Valuation and Investment"** is an insightful offering hosted on Coursera, crafted in partnership between the prestigious **University of Melbourne** and **Bank of New York Mellon (BNY Mellon)**. This course is designed for finance enthusiasts who wish to delve deeper into investment valuation techniques beyond traditional approaches. Spanning various realms of asset valuation, participants can expect to learn about intuitive foundations, alternative techniques, and their practical applications in the world of finance. For those curious about the course's offering, you can view the promotional video [here](http://tinyurl.com/h75pzt6). #### Course Syllabus Breakdown 1. **Defining Attitudes Towards and Alternative Measures of Risk** The course begins by discussing stand-alone risk through statistical measures, namely the standard deviation of returns. Three attitudes toward risk are explored, culminating in a focus on risk aversion as the prevailing sentiment in financial markets. It also emphasizes the advantages of diversification within portfolio management—a fundamental concept in investment strategy. 2. **Linking Risk with Expected Return** This week differentiates between systematic and unsystematic risks and examines how expected returns correlate with risk. The Capital Asset Pricing Model (CAPM) is introduced, addressing its use in connecting systematic risk with potential returns. The course is not afraid to tackle the empirical weaknesses of CAPM, leading students to explore more advanced valuation models and the practical approaches employed by finance managers in real-world scenarios. 3. **Using Financial Statement Analysis to Measure Cost of Capital** Here, participants will gain insights into the Weighted Average Cost of Capital (WACC) and learn practical estimation methods. However, the course also highlights the various challenges associated with these estimates, cautioning against careless application that can lead to dire financial repercussions. 4. **Addressing Financial Reality with Real Options Analysis** The final section critiques traditional Net Present Value (NPV) analysis and highlights its limitations in considering firm flexibility. Students will understand different types of real options that organizations encounter and how decision trees can identify the value of these options. The session wraps up with empirical insights on the adoption of real options analysis, emphasizing when this approach becomes crucial. #### Why You Should Take This Course **1. Comprehensive Content**: The course covers a wide array of critical topics in finance that are essential for anyone looking to sharpen their investment appraisal skills. **2. Expert Guidance**: Being developed in collaboration with esteemed institutions like the University of Melbourne and BNY Mellon, the course promises insights from leading experts in the field. **3. Practical Applications**: The emphasis on real-world applications means that what you learn can be immediately relevant in professional settings or when making personal investment decisions. **4. Flexibility**: As a Coursera offering, the course allows for self-paced learning, accommodating various schedules while ensuring a thorough understanding of complex concepts. **5. Peer Networking**: Engaging with this course provides opportunities to network with fellow finance professionals and enthusiasts, expanding your professional network. #### Conclusion "Alternative Approaches to Valuation and Investment" is a well-structured course that stands out for its specialized focus on non-traditional valuation techniques and risk assessments. Whether you're a finance professional aiming to refine your skills or an investor looking to enhance your understanding of asset valuation, this course is highly recommended. The practical insights gained regarding risk management, cost of capital, and real options analysis are invaluable assets in today's dynamic financial environment. Sign up for the course today and elevate your investment knowledge to new heights!

Syllabus

Defining Attitudes Towards and Alternative Measures of Risk

This week we will define a statistical measure of stand-alone risk as being the standard deviation of returns. We will describe three alternative attitudes towards risk, settling on risk aversion as being the standard assumption made in financial markets. We will then analyse the impact of combining assets into a portfolio upon both risk and return and then quantify the benefits from diversification by comparing performance against a suitable benchmark.

This week we differentiate between systematic and unsystematic risk and explain how the expected returns that are reflected in the prices of assets should be linked to only one type of risk. We illustrate how the Capital Asset Pricing Model might be used to link systematic risk with expected return and then discuss the empirical shortcomings of the model. This leads to a description of more advanced models and we conclude with a review of survey evidence that considers the approach taken by finance mangers of large listed firms in practice.

This week we will explain the logical underpinnings of the Weighted Average Cost of Capital Formula and show how it might be estimated in practice by a firm. We will also consider the many challenges that might be faced in using this approach to estimating hurdle rates and conclude with a warning about the perverse outcomes that might occur if the technique is used in a haphazard manner.

This week we describe how standard NPV analysis might lead to incorrect decisions when we fail to account for the impact of (or upon) firm flexibility. We then describe the three most common types of real options that firms face in practice and then explain how decision trees might be used to arrive at an approximation of the value of the real option that is embedded within a project. We conclude by considering empirical evidence on the take-up of real options analysis and discuss the situations in which real options analysis might most be needed.